QUESTION ONE $(50)$

Read the following article and answer the questions that follow:

The Amazon Supply Chain: The Most Innovative in the World?

Is the Amazon supply chain the most innovative in the world? A very strong argument can

be made that they are despite some announcements that were pie in the sky $$ like the

patent they won in January for floating warehouses that use drones for deliveries and

replenishment. Or for that matter, Jeff Bezos$$ drone prediction made five years ago on $60$

Minutes. Drones for home delivery are still too dangerous, as opposed to using drones for

inventory management.

But other events are both innovative and meaningful. Let$$s just review some of their activities

over just the past year.

Relay

Relay, quietly released in October, is Amazon$$s first trucking app, and is designed to make

trips to Amazon warehouses faster and more efficient. Drivers can enter cargo information

into the app before they arrive. Once they have entered the information, they are given a QR

code which they will use at the security gate. The idea is that by pre$-$checking in$,$ they use

the QR code to pass through security instead of the manual process of showing and

scanning a badge at the gate. With the pre$-$check in process, it gives Amazon better visibility

into the current location of its deliveries, and can better prepare for arrivals. Some of

Amazon$$s warehouses and fulfilment centres have built lanes that are dedicated solely for

Relay users. Relay aims to speed up the process of making deliveries to warehouses.

Additionally, it can help to reduce manual processes.

The actual application of Relay is narrow, as it is only used for deliveries to Amazon

facilities. However, the vision may be bigger. It may be a way for Amazon to make inroads

for a much larger future Uber$-$type freight matching service.

Whole Foods and Dash

Amazon$$s acquired Whole Foods in June for $$13\mathrm{.}7$ billion in cash. The move finally puts

Amazon in the position that it has been working towards for years in the grocery space.

Grocery has been one area that Amazon has not been able to crack, even with the launch of

Amazon Fresh. By bringing the Whole Foods brand into the Amazon family, the company

immediately gets a boost for its grocery business.

Of course, Walmart is the goliath in this space. But Amazon seeks to use convenient

deliveries and technology to begin to make up the difference. Amazon$$s Dash buttons,

introduced before the acquisition, are a great complement to the acquisition. The Dash

Button is a small wireless device about the size of a pack of gum. When a customer presses

the button, the device uses Wi$-$Fi to order items the customer has pre$-$selected from

Amazon. Amazon$$s vision is that people will mount their buttons in their kitchen, pantry,

laundry room, and bathroom using the attached adhesive strip on the back of the

device. Then, for example, when they run out of Tide laundry detergent, the consumer

pushes the button and Tide is automatically ordered. A consumer would purchase a Dash

Button for $$4\mathrm{.}99$ on Amazon.com for each of their favorite brands. With each purchase

comes a $$4\mathrm{.}99$ instant credit after the first purchase.

Amazon brought its supply chain expertise as well. Whole Foods was notorious for holding

too much inventory at their stores. When a client asked for something, a helpful associate

would go to the backroom and search for it$,$ and perhaps in ten minutes would return with the

item, or perhaps not. Now they have gone to a lean, JIT grocery supply chain with virtually

no inventory in the back. But the store shelves are as full, or fuller, than they were

previously.

But much work remains to be done to build out a profitable home delivery network. In

theory, the Whole Food stores could be used as forward warehouses, in addition or instead

of being stores. But even after decluttering the back rooms, most of the Whole Foods

locations do not offer the right layout to switch over to a delivery warehouse, as they do not

have the required docks or quite enough back room space.

Amazon, the Carrier

In February, Amazon announced plans to build its first air cargo hub at Cincinnati$/$Northern

Kentucky Airport. This is based on sound economics. When the $2-$million$-$square$-$foot

facility opens, it will reduce the company$$s dependence on UPS and FedEx. But Amazon

was already moving away from reliance on the parcel giants by giving an increasing share of

its parcel business to lower cost regional providers. And many e$-$commerce shoppers have

seen their orders delivered by the company$$s fleet of private trucks.

Amazon had already moved into the ocean freight business for similar reasons. But this

year, Amazon began taking greater control over shipments from China. Specifically, Amazon

has started handling the shipment of goods from Chinese retailers that sell on its platform.

For this line of business Amazon is acting as it